this presentation provides general info about banking

1. © South-Western PublishingSlide 11
THE BUSINESS
OF BANKING
By Taj M Tamkeen
taj_tamkeen@yahoo.com
1.11.1 Introduction to Banking
1.21.2 Role of Banks in the Economy
1.31.3 How the Banking System Works
1.41.4 Other Financial Institutions
11

2. © South-Western PublishingSlide 22
THE BUSINESS
OF BANKING
1.11.1 Introduction to Banking
1.21.2 Role of Banks in the Economy
1.31.3 How the Banking System Works
1.41.4 Other Financial Institutions
11

3. © South-Western PublishingSlide 33
Lesson 1.1
INTRODUCTION
TO BANKING
Define the business of banking
Identify trends in modern banking
GOALSGOALS

4. © South-Western PublishingSlide 44
WHAT IS A BANK?WHAT IS A BANK?WHAT IS A BANK?WHAT IS A BANK?
A bank is a business.
Banks sell their services to earn money.
Banks must earn a profit to survive.

5. © South-Western PublishingSlide 55
A UNIQUE BUSINESSA UNIQUE BUSINESSA UNIQUE BUSINESSA UNIQUE BUSINESS
The services banks offer to customers have to do
almost entirely with handling money for other people.
Money is a medium of exchange—an agreed upon system
for measuring values of goods and services.
Money shows how much something is worth.
A bank is a financial intermediary for the
safeguarding, transferring, exchanging, or lending of
money.
An intermediary is a facilitator acting between parties.
Banks facilitate the flow of money throughout our

6. © South-Western PublishingSlide 66
TYPES OF BANKSTYPES OF BANKSTYPES OF BANKSTYPES OF BANKS
Commercial banks
Retail banks
Central banks

7. © South-Western PublishingSlide 77
BANKING TODAYBANKING TODAYBANKING TODAYBANKING TODAY
Traditionally, banking was viewed as a solid and
slow-moving industry.
Banking today is an exciting, fast-moving,
around-the-clock, around-the-world activity.

8. © South-Western PublishingSlide 88
MERGERSMERGERSMERGERSMERGERS
A merger occurs when one or more banks join
or acquire another bank or banks.
Mergers increase the size of banks, giving them
more resources.
Mergers decrease the number of banks.
Mergers have created an opening for a new
wave of small local banks.

9. © South-Western PublishingSlide 99
TOP TEN LARGESTTOP TEN LARGEST
BANKS WORLDWIDEBANKS WORLDWIDE (Ranked by size of assets)
BankBank CountryCountry
Mizuho Financial Group Japan
Citigroup United States
Deutsche Bank Germany
JP Morgan Chase Co. United States
Bank of Tokyo-Mitsubishi Japan
HSBC Holdings United Kingdom
Hypo Vereinsbank Germany
UBS Switzerland
BNP Paribas France
Bank of America Corp. United States

10. © South-Western PublishingSlide 1010
TECHNOLOGYTECHNOLOGYTECHNOLOGYTECHNOLOGY
Impact on bankers
Accounting, auditing, and examining functions have
been taken over by fast and efficient technology.
Funds transfer, record keeping, and financial
analyses have become instantaneous.
Impact on consumers
Automated teller machines (ATMs)
“Smart” cards
Online banking

11. © South-Western PublishingSlide 1111
COMPETITIONCOMPETITIONCOMPETITIONCOMPETITION
As government regulations have changed,
competition between banks has become fiercer.
Banks compete with each other and with other
businesses that sell financial services.

12. © South-Western PublishingSlide 1212
Lesson 1.2
ROLE OF BANKS IN
THE ECONOMY
List banking activities that contribute to
economic stability
Explain how banking expands the
economy
GOALSGOALS

13. © South-Western PublishingSlide 1313
BANKS AND ECONOMICSBANKS AND ECONOMICSBANKS AND ECONOMICSBANKS AND ECONOMICS
Money is a medium of exchange and the basis
of the modern economy.
Banks and other institutions play a critical role in
performing services that are essential to the
functioning of an economy.

14. © South-Western PublishingSlide 1414
KEEPING YOUR MONEY SAFEKEEPING YOUR MONEY SAFEKEEPING YOUR MONEY SAFEKEEPING YOUR MONEY SAFE
Record keeping
Identification
Enforcement
Transfer security
Sound business practices

15. © South-Western PublishingSlide 1515
SPREADING THE WEALTHSPREADING THE WEALTHSPREADING THE WEALTHSPREADING THE WEALTH
Banks play a key role in transferring money to
provide growth and stabilizing the monetary
supply.
Bank lending makes money available to
consumers and businesses to make purchases
they might not otherwise be able to make.

16. © South-Western PublishingSlide 1616
TRANSFERRINGTRANSFERRINGTRANSFERRINGTRANSFERRING
Between banks
Between banks and individual customers
Between banks and industry
Between banks and governments
Between governments

17. © South-Western PublishingSlide 1717
LENDINGLENDINGLENDINGLENDING
Loans to businesses
Loans to governments
Loans to individuals
Credit cards
Home loans
Automobile loans

18. © South-Western PublishingSlide 1818
CREDITWORTHINESSCREDITWORTHINESSCREDITWORTHINESSCREDITWORTHINESS
Evaluating the creditworthiness of customers
is a banking function that affects the economy
at large.
Banking policies and regulations regarding
creditworthiness and the ratio of loans to
deposits help guarantee a secure financial
environment.

19. © South-Western PublishingSlide 1919
GUARANTEEING THE MONEYGUARANTEEING THE MONEYGUARANTEEING THE MONEYGUARANTEEING THE MONEY
In the United States, banks and the government work together
to form the banking system and to make sure the money
supply is adequate, appropriate, and trustworthy.
Much of this guarantee is backed through the central banking
function of the Federal Reserve.
Individual banks work with the government to implement
monetary policy, perform exchange functions, and defeat
counterfeiters of currency.
Banks guarantee their own policies.

20. © South-Western PublishingSlide 2020
THE SUBSTANCE OF SOCIETYTHE SUBSTANCE OF SOCIETYTHE SUBSTANCE OF SOCIETYTHE SUBSTANCE OF SOCIETY
A great part of the economic system is
psychological.
Banks are at the heart of our financial system,
and their effect on your life cannot be calculated.

21. © South-Western PublishingSlide 2121
Lesson 1.3
HOW THE BANKING
SYSTEM WORKS
Explain how banks acquire money to do
business
Identify new services that banks offer to
stay competitive
GOALSGOALS

22. © South-Western PublishingSlide 2222
MONEY AT WORKMONEY AT WORKMONEY AT WORKMONEY AT WORK
Banks earn money in various ways.
Most of their income comes from the interest
that people or businesses pay as they repay a
loan.
When banks lend money, they put it to work.

23. © South-Western PublishingSlide 2323
THE SPREADTHE SPREADTHE SPREADTHE SPREAD
The difference between what a bank pays in
interest and what it receives in interest is called
the spread, or net interest income.
The spread is not pure profit. The spread is
income, or revenue.
Profit is what is left of revenue after costs are
deducted.

24. © South-Western PublishingSlide 2424
OTHER FUNDSOTHER FUNDSOTHER FUNDSOTHER FUNDS
In addition to interest income, banks have other
sources of income.
They charge for various services such as rental
of safe-deposit boxes, account maintenance
fees for checking accounts, fees for online bill
payments, and ATM transaction fees.
Banks make money on investments.
Banks may have funds at their disposal from
stockholder investments.

25. © South-Western PublishingSlide 2525
ASSETS AND LIABILITIESASSETS AND LIABILITIESASSETS AND LIABILITIESASSETS AND LIABILITIES
An asset is anything of value. In financial terms,
that usually means money.
A liquid asset is anything that can readily be
exchanged, like cash.
A liability, in financial terms, is a cash obligation.

26. © South-Western PublishingSlide 2626
TWO PRINCIPLES OF BANKINGTWO PRINCIPLES OF BANKINGTWO PRINCIPLES OF BANKINGTWO PRINCIPLES OF BANKING
A bank’s liabilities exceed its reserves.
A bank’s liabilities are more liquid than its
assets.

27. © South-Western PublishingSlide 2727
BANKS WORKING FOR YOUBANKS WORKING FOR YOUBANKS WORKING FOR YOUBANKS WORKING FOR YOU
Banking has changed radically in the last 20
years.
Large regional banks have huge resources.
Smaller banks use the flexibility that sometimes
comes with smaller size to their advantage.

28. © South-Western PublishingSlide 2828
CHANGES IN TRADITIONAL SERVICESCHANGES IN TRADITIONAL SERVICESCHANGES IN TRADITIONAL SERVICESCHANGES IN TRADITIONAL SERVICES
Branch locations
Extended hours
Drive-up windows
Variety of checking accounts
Savings options
Personal service

29. © South-Western PublishingSlide 2929
NEW SERVICESNEW SERVICESNEW SERVICESNEW SERVICES
Credit cards
Innovative lending
Automated teller machines (ATMs)
Smart cards
Online banking

30. © South-Western PublishingSlide 3030
Lesson 1.4
OTHER FINANCIAL
INSTITUTIONS
Explain depository financial institutions
Explain nondepository financial institutions
GOALSGOALS

31. © South-Western PublishingSlide 3131
TYPES OF FINANCIAL INSTITUTIONSTYPES OF FINANCIAL INSTITUTIONSTYPES OF FINANCIAL INSTITUTIONSTYPES OF FINANCIAL INSTITUTIONS
Depository intermediaries
Obtain funds from the public
Use the funds to finance their business
Nondepository intermediaries
Do not take or hold deposits
Earn their money by selling specific services or
policies

32. © South-Western PublishingSlide 3232
DEPOSITORY INTERMEDIARIESDEPOSITORY INTERMEDIARIESDEPOSITORY INTERMEDIARIESDEPOSITORY INTERMEDIARIES
Commercial banks
Savings and loan associations
Mutual savings banks
Credit unions

33. © South-Western PublishingSlide 3333
NONDEPOSITORY INTERMEDIARIESNONDEPOSITORY INTERMEDIARIESNONDEPOSITORY INTERMEDIARIESNONDEPOSITORY INTERMEDIARIES
Insurance companies
Trusts companies/pension funds
Brokerage houses
Loan companies
Currency exchanges